The Number That Caught My Attention
A new report caught my attention because it says nearly one-fourth of the American labor force is what researchers call functionally unemployed. That number sounds almost unbelievable when the official unemployment rate is only a little over four percent. In July 2026, the Ludwig Institute for Shared Economic Prosperity estimated its True Rate of Unemployment at 24.9 percent. The official unemployment rate for that same month was 4.1 percent. Those numbers are measuring two different things, and that difference is important. The traditional unemployment rate asks primarily whether somebody without a job is actively looking for one. The alternative measure asks whether people are actually getting enough work and income to maintain a basic economic foothold. That includes some people who technically have jobs. So a person can appear employed in government statistics while still struggling badly financially. That is the part of this conversation I believe deserves more attention. Having a job and having a job that allows you to live are no longer automatically the same thing.
What Functional Unemployment Actually Means
The term functional unemployment is not the government’s official unemployment measure. It comes from the Ludwig Institute’s alternative economic measurement called the True Rate of Unemployment, or TRU. Under that definition, somebody may be functionally unemployed if they have no job, want full-time work but cannot obtain enough hours, or earn below the institute’s wage threshold. The institute currently describes that wage threshold as about $26,000 a year in 2025 dollars before taxes. That is considerably different from saying everybody earning under $65,000 is functionally unemployed. Somebody making $60,000 may certainly struggle badly in an expensive city, but LISEP does not automatically classify that person as functionally unemployed for that reason alone. Cost of living varies tremendously depending on where somebody lives. Sixty thousand dollars in one community can stretch much farther than sixty thousand dollars in another. Family size also changes what a household needs. So I understand the concern behind the $65,000 claim, but the actual definition needs to be stated accurately. The real statistic is disturbing enough without making it larger than it is.
Where the $65,000 Figure Came From
The $65,000 number appears in another part of the economic data, which may explain how these ideas became mixed together. LISEP reports that the headline median weekly earnings figure for full-time workers was about $1,251 during the second quarter of 2026. Annualized, that comes to approximately $65,052. LISEP’s own broader True Weekly Earnings measure was lower at about $1,033 a week. Annualized, that broader figure comes to roughly $53,723. Those statistics measure earnings rather than setting the definition of functional unemployment. That is an important difference. A person hearing $65,000 in a video can easily assume that number is the cutoff for being able to survive. But that is not what the institute is saying. What the numbers do show is that earnings can look stronger when the statistic focuses only on people who already have full-time jobs. Once part-time workers and job seekers are included, the picture becomes less comfortable.
Why Four Percent Can Feel Nothing Like Four Percent
This helps explain why people sometimes hear that unemployment is low and wonder what economy the experts are talking about. They look around and see people working two jobs. They see adults moving back home because rent has become too expensive. They see people putting groceries on credit cards and postponing medical care because the money will not stretch far enough. They know people whose workweek says twenty-five hours even though they desperately want forty. None of those experiences necessarily appear clearly in the headline unemployment rate. The official rate has a specific purpose and definition. It was never designed to answer every question about economic well-being. That does not make the number fraudulent. It means we should not ask one statistic to describe the entire labor market. A country can have relatively low official unemployment while millions of workers still feel financially insecure.
Who Counts as Officially Unemployed
The Bureau of Labor Statistics has a very specific definition of unemployment. Generally, a person must have no job, be available for work, and have actively searched for work during the previous four weeks. If somebody wants a job but has stopped actively searching, that person normally is not counted among the officially unemployed. They may instead be classified as outside the labor force. Some people are considered marginally attached to the labor force because they want work and have searched during the previous year but not during the most recent four weeks. Discouraged workers are part of that broader group. These distinctions are not tricks invented to make politicians look good. Economists use definitions so numbers can be compared consistently across time. But those definitions can leave ordinary people feeling that the headline number does not describe what they are seeing around them. Somebody who gave up searching after months of rejection has not suddenly become economically secure. They simply moved into another statistical category.
A Job Can Still Leave You Broke
That may be the most important part of this whole conversation. Employment by itself does not guarantee financial security. Somebody can clock in every morning, work hard all day, and still come home worried about which bill gets paid first. Rent does not care that you have excellent attendance at work. The electric company does not reduce the bill because you are doing your best. Groceries, car insurance, gasoline, health care, utilities, and housing all compete for the same paycheck. When wages do not keep pace with those necessities, work stops providing the sense of security people were taught to expect from it. That creates a particular kind of frustration. You are doing what society told you to do, yet you still cannot get ahead. At that point, telling somebody to simply work harder can sound disconnected from what they are already doing.
The Part-Time Problem
Part-time employment is another part of the story that gets overlooked. There are people who choose part-time work because it fits their lives, and there is nothing economically unhealthy about that choice by itself. Retirees, students, caregivers, and others may deliberately prefer fewer hours. The problem is the person who wants full-time employment but cannot get enough hours. That worker may technically be employed while remaining economically underused. Twenty hours of wages cannot always cover forty hours of living expenses. Scheduling can make the situation even harder when work hours change from week to week. It becomes difficult to take a second job when you never know when the first employer will schedule you. Planning child care becomes harder as well. A worker can therefore have a job and still lack the stability we traditionally associate with employment. That is one reason broader measures of labor-market health can add something useful to the conversation.
The Cost of Living Changes Everything
Income cannot be discussed intelligently without talking about what things cost. Housing has become one of the biggest pressures on working households. A salary that once sounded comfortably middle class can disappear quickly when rent or a mortgage consumes a large percentage of take-home pay. Add a car payment, insurance, utilities, groceries, health expenses, and debt, and the paycheck starts looking very different. This is why one national dollar amount cannot perfectly define economic security for everybody. A household in rural Mississippi faces different costs from a household in Miami, Boston, New York, or San Francisco. A single person has different expenses from a parent supporting three children. Homeowners and renters encounter different pressures. People with medical expenses may require substantially more income than healthy households. So when somebody says, “You make $60,000, you should be doing fine,” they may know the salary while knowing almost nothing about the person’s actual economic circumstances.
Why Workers Pinch Pennies
When millions of workers feel financially insecure, they naturally become more cautious about spending. People postpone replacing furniture. They hold onto cars longer. They eat out less frequently and skip vacations. They may delay home repairs, clothing purchases, entertainment, and other discretionary expenses. From the individual’s point of view, that behavior is responsible. From the perspective of the broader economy, however, widespread financial restraint can weaken consumer demand. Consumer spending represents a major part of economic activity in the United States. Businesses depend upon people having enough disposable income to purchase more than bare necessities. When workers spend nearly everything on housing, food, transportation, insurance, and utilities, fewer dollars remain for everything else. That is why wage quality matters not only to individual households but to the larger economy.
The Economy Needs Customers Too
We sometimes talk as though workers and consumers are two completely different groups of people. Most of the time, they are the same people. The person receiving a paycheck on Friday becomes somebody else’s customer on Saturday. If wages are weak, businesses eventually feel that weakness through reduced demand. Henry Ford famously understood part of this relationship when he recognized that workers with stronger wages could participate more fully in the consumer economy. Modern economics is far more complicated than that one example, but the basic connection remains. Businesses need customers with money to spend. Workers need employers with enough revenue to pay sustainable wages. A healthy economy requires both sides of that relationship to function. If enormous numbers of people are working but cannot afford much beyond necessities, something important is happening beneath the unemployment headline. That is why broader measures deserve consideration alongside the official rate.
This Is Not About Blaming Workers
I especially do not want somebody hearing the phrase functionally unemployed and thinking it means they have failed. A person earning a low wage may be working harder physically than somebody earning five times as much. Compensation does not always measure effort. Our economy pays according to many factors, including skills, scarcity, bargaining power, education, industry, location, ownership, and market demand. Some essential workers receive surprisingly modest wages despite how much society depends on them. People can also become trapped in places where better employment opportunities are limited. Transportation, child care, disability, family responsibilities, and education can affect what work somebody can realistically accept. There are personal choices involved in financial life, but there are structural conditions too. We do not improve the conversation by pretending everything comes down to individual discipline. Sometimes hardworking people are simply operating inside a difficult economic environment.
The Numbers Can Hide Human Lives
Economic statistics are necessary, but statistics have no trouble sleeping at night. People do. A percentage point cannot explain what it feels like to wonder whether your debit card will clear at the grocery store. A chart does not describe the embarrassment of telling your child that something they want will have to wait. A labor report does not show somebody sitting at the kitchen table deciding whether to pay the electric bill or the car insurance. Those experiences live behind the numbers. That does not mean economists should abandon statistics for personal stories. We need both. Data tells us whether a problem is widespread, while people’s experiences tell us what that problem feels like. When nearly one-fourth of the labor force fits a research institute’s broader definition of functional unemployment, that statistic deserves attention. The question becomes what conditions are producing it and what policies might improve them.
We Should Not Throw Away the Official Rate
I would not go as far as saying we should stop caring about the official unemployment rate. It remains an important indicator of economic health. A jump from four percent unemployment to ten percent would tell us something extremely serious was happening. Governments, businesses, investors, and researchers need that information. The problem comes when we treat the headline rate as the only number that matters. We should look at labor-force participation. We should look at wages. We should examine involuntary part-time employment, job openings, hiring, layoffs, and how much ordinary necessities cost. We should look at whether household income is actually improving after inflation. No single statistic can carry that entire responsibility. The economy is too complicated to fit inside one percentage.
What 24.9 Percent Should Make Us Ask
The 24.9 percent figure should make us ask better questions rather than simply panic. Why are so many people unable to obtain full-time work at wages above the institute’s basic threshold? Which industries contain the highest concentration of low-wage or involuntary part-time workers? How does the experience differ by race, sex, age, education, and location? Are wages increasing quickly enough to keep up with essential living costs? Are people leaving the labor force because they do not want to work or because they have become discouraged? How much are housing costs contributing to the pressure? What happens to families when one emergency expense can wipe out the month’s entire budget? Those are policy questions as well as personal-finance questions. Better data can help us understand where the pressure is actually coming from. Then the conversation can move from outrage toward solutions.
A Low Unemployment Rate Is Not the Same as Prosperity
There is one distinction I believe we need to remember. Low unemployment and widespread prosperity are not interchangeable ideas. We certainly want people to have jobs because unemployment can devastate families and communities. But the next question should be what kind of jobs those people have. Do the jobs provide enough hours? Do wages allow workers to cover ordinary necessities? Is there room to save for emergencies and retirement? Can a person afford reasonable housing near the place where they work? Does one illness or car repair threaten the entire household budget? Those questions move us from simply counting jobs toward examining economic security. An economy should ultimately be judged not only by how many people are working but by whether ordinary people can build stable lives from their work.
Summary
The new functional unemployment figure is concerning, but it needs to be understood correctly. LISEP estimated the rate at 24.9 percent in July 2026, compared with the official unemployment rate of 4.1 percent. The institute includes jobless people, people who want full-time work but cannot get it, and workers below its basic wage threshold. That threshold is roughly $26,000 annually in 2025 dollars, not $65,000. The roughly $65,000 figure comes from annualizing a separate full-time median earnings statistic. Still, the larger concern behind the report is legitimate. Millions of Americans have jobs without feeling economically secure. The official unemployment rate alone cannot tell us whether those jobs provide enough hours or adequate wages. We need to consider employment, earnings, working hours, participation, and cost of living together. A job matters, but the quality of that job matters too.
Conclusion
What concerns me most is not whether we call somebody unemployed, underemployed, or functionally unemployed. It is whether working people can build reasonable lives from honest work. A person should not have to feel ashamed because the paycheck no longer stretches as far as the responsibilities waiting for it. We should keep watching the unemployment rate, but we should not stop there. We need to know what workers earn. We need to know whether they can obtain enough hours. We need to know how housing, food, insurance, utilities, transportation, and health costs are affecting them. Twenty-four point nine percent is not proof that one-fourth of working Americans earn under $65,000 and therefore cannot survive. It is an alternative measure warning that the labor market looks weaker when low wages and inadequate hours are counted alongside outright unemployment. That is a more accurate way to describe what the report actually found. And if millions of Americans are working while still unable to achieve basic economic security, then that is a problem worth taking seriously whether Washington calls them unemployed or not.